The last six months have strongly underlined the everlasting creed that ensuring your business is sufficiently funded is still your most important objective, bar none. It’s always been the case, now some businesses will have to fight this one more strongly than ever but the same principles apply.
If you’re in the fortunate position of wanting to expand your business, you still need to be careful. Your most likely challenge, even if you don't realise it, is going to be funding. Yet that seems counter intuitive because more sales equals more cash - so what's the problem? It's the timing difference – often the cash goes out before the extra sales income appears. That delay needs financing - the more the growth, the bigger the gap. So where will it come from? Will you have enough?
Unless you have sufficient spare cash then you'll need to do what most expanding businesses don't do well and that is plan the funding. A cash flow forecast is really essential - often that seems a challenge but it needn’t be. Complete accuracy is not necessary, but it should be close enough to give you an idea of what to expect. Then you can take action to facilitate your plans – maybe you can agree extended terms with your suppliers if you explain what is happening your end or perhaps look at alternative method of funding.
This applies most particularly to businesses that sell on credit to customers, however, even those which are paid at point of sale still have to finance the extra stock, selling and admin resources in advance. There's nothing sadder than seeing a 'successful' rapidly expanding business go bust so make sure that doesn’t happen to you.
On the positive side good cash planning will enable you to expand without this restriction and will boost your profits.
A Five Point Action Plan:
1) Make Cash Flow top of your agenda every day
2) Review, implement and improve your Credit Management system and chase your debtors effectively
3) Produce a cash flow forecast for at least a year and update it frequently
4) Line up alternative methods of funding
5) Charge more, increase your margins and profitability
